KPMG apologizes over tax shelters

Move could help accounting giant steer clear of an indictment

ARINDAM NAG, Reuters News Service

Published 5:30 am, Friday, June 17, 2005

NEW YORK - KPMG, one of the Big Four accounting firms, Thursday apologized for helping set up illegal tax shelters, in a move that could help it avoid criminal indictment and the fate of Arthur Andersen three years ago.

Federal prosecutors have been probing certain tax services that were offered by KPMG to some of its wealthy clients between 1996 and 2002. Some of the shelters were meant to save KPMG clients millions of dollars in tax payments.

"KPMG takes full responsibility for the unlawful conduct by former KPMG partners during that period, and we deeply regret that it occurred," the audit firm said in a prepared statement.

A Justice Department spokesman declined to comment, but the Wall Street Journal reported that prosecutors have built a criminal case against KPMG for obstruction of justice and the sale of abusive tax shelters. The paper, citing unnamed lawyers briefed on the case, said top department officials are debating now whether to seek an indictment of KPMG.

KPMG said it has taken stringent measures to change its culture and structure and other steps to see that those responsible for wrongdoing have left the firm.

Some accounting experts said that while an indictment could surely ground KPMG, it would not bode well for the accounting industry. Dozens of top-notch corporations had to scramble around the world to find new auditors after Arthur Andersen was brought down by an indictment over its role in the accounting fraud committed at energy trader Enron Corp.

"There does not seem to be any appetite for reducing the number of audit firms any more. It is already difficult enough for a large corporate entity to retain the size and sophistication of auditors," said Mark Cheffers, head of auditor research firm Audit Analytics, adding that an indictment "will be intolerable."

KPMG's public apology follows a cleanup that the audit firm undertook after the start of the federal investigation.

The KPMG executive who headed the firm's tax practice during at least some of the period covered by the investigation resigned last year, about two years after having moved from the tax practice to be KPMG's chief financial officer.